Kitzhaber starts push for tax-and-PERS deal

By JONATHAN J. COOPER and STEVEN DUBOISOf the Associated Press

HILLSBORO — Oregon Gov. John Kitzhaber started a road trip Friday to try to persuade at least a couple of Republican legislators to accept the so-called “grand bargain” that died in the recently completed legislative session.

The deal that failed in a party-line vote would have had Republican lawmakers accept tax increases in exchange for Democrats agreeing to curtail retirement benefits for public employees. It would provide additional money for education.

If the sides can reach a compromise, the governor will call lawmakers back to Salem for a special session, likely this fall.

Hours after Kitzhaber began his push, the board that oversees the Public Employees Retirement System said it would reduce its assumed rate of return on investments for the first time in 24 years.

The move will result in a slight reduction in benefits for some longtime government employees and higher long-term costs for state and local governments.

Kitzhaber began his tour in Hillsboro, home to Intel — Oregon's largest private employer and one that craves skilled workers — and a school district that has faced persistent cuts. He was joined by Sen. Bruce Starr of Hillsboro, seen as the likeliest Republican to vote for the deal.

Both men said the intensity of the Legislature's final days contributed to the bargain's collapse and that getting away from the Capitol will help stimulate a compromise.

“I don't think it was anybody's fault,” Kitzhaber said of the failure. “It was an issue that was sort of percolating at the end of the session. There was a lot stress and challenges at the end of the day. But we're still committed to try and figure out how to do it.”

Starr initially voted “yes” on a bill that called for a $215 million package of tax increases, but changed his mind when it became apparent that no other Republican would join him. Even if every Democratic senator supports a tax increase, at least two Republican votes are needed for passage.

“I believe the need to reform our public employee retirement system is great enough that we will find the votes that are necessary on both pieces of the bargain,” Starr said.

The governor's tour was expected to include Hood River, northern Clackamas County, Salem and other locations. The dates have not been finalized.

In Hillsboro, Kitzhaber and Starr listened to education leaders lament shortened school years, outdated technology, libraries without librarians and class sizes that have ballooned to 40 students.

“Parents in our community have lost hope,” said Kim Strelchun, who chairs the Hillsboro School District board and cited cuts that have occurred since her daughter started school.

“When I used to start doing advocacy work, I had a little wish list of the top 10 things I would add back,” she said. “I don't even dream of that add-back list anymore, because the add-back list is just: ‘Can we have a full school year?’”

Friday's action by the pension system board lowered the assumed earnings rate from 8 percent a year to 7.75 percent — a reaction to forecasts showing the pension fund is unlikely to hit the 8 percent mark.

The assumed rate of return is used to calculate monthly retirement benefits for some workers. Active workers with the longest service in state government would be most affected.

A lower assumed earnings rate means state and local governments have to contribute more to fund retirement benefits for current and former employees. To mitigate that impact, the board approved two accounting changes that will slow growth in retirement contributions in the near term but require that the higher rates be paid longer.

The higher costs aren't expected to hit government agencies until 2017.

The PERS is trying to recover from substantial investment losses during the Great Recession, when the pension fund lost 27 percent of its value.